Fitch raises India FY25 GDP forecast to 7% from 6.5%

The rating agency revised upwards its projection for India’s economic growth for the current and next fiscal years, citing robust domestic demand and sustained growth in business and consumer confidence. However, it moderated its view on rate cuts.

Robust Growth Predicted

Fitch anticipates India’s economy to maintain its sturdy expansion, with the real GDP forecasted to rise by 7 percent in FY25, commencing in April. This marks a 50 basis points (bps) increase from its December forecast, as mentioned in its recent report.

India’s economy expanded by 8.4 percent in October-December FY23, marking its fastest pace in 18 months, led by robust manufacturing and construction activities.

Fitch predicts a moderation in growth momentum in the October-December FY24 period, estimating a growth rate of 7.8 percent for FY24, with GDP growth, has exceeded 8 percent for three consecutive quarters.

Optimistic Forecast

The rating agency’s forecast for fiscal 2024 surpasses the Indian government’s revised estimate of 7.6 percent, making it one of the most optimistic forecasts on record. However, Reserve Bank of India (RBI) chief Shaktikanta Das recently hinted at growth possibly nearing 8 percent.

Fitch highlights domestic demand, particularly investment, as the primary growth driver, amidst sustained levels of business and consumer confidence. The agency suggests that growth in the short term will likely outpace the economy’s estimated potential, moderating towards trend in FY25.

Fitch expects retail inflation to steadily decrease to 4 percent by the end of this calendar year, assuming recent food price volatility will subside.

Rate Cut Expectations

Fitch now anticipates the RBI to cut interest rates only in the second half of the calendar year, revising its estimate to 50 bps, down from 75 bps in December, owing to the stronger growth outlook.

The RBI has maintained the repo rate unchanged at 6.50 percent for the last six consecutive meetings, reaffirming its commitment to achieving the 4 percent inflation target sustainably.

(With inputs from Reuters)

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Published: 14 Mar 2024, 11:30 AM IST